Heidi Ganahl Says She’ll Eliminate Colorado Income Tax — But Not How

Heidi Ganahl, the Republican gubernatorial candidate, is campaigning on a bold pledge to eliminate Colorado’s 4.55% personal income tax, the state’s largest source of general fund revenue, during his first four-year term.

“I’m going to get us to zero income tax,” she told Republican voters at a candidates’ forum in April.

But Ganahl, a University of Colorado regent and the only remaining Republican to hold statewide elected office, did not explain how she plans to eliminate Colorado’s income tax without significantly affect the state budget, almost a third of which is made up of income tax. .

Ganahl would have to either cut programs and services to make up for lost revenue — likely including education funding — or find billions of dollars elsewhere by trying to raise other taxes or passing new fees.

“It’s doable,” she said in an interview last month without offering detailed plans for how she would do it. “It’s not going to happen overnight.”

Republicans have been slowly cutting Colorado’s tax rate for years. The latest effort is a question about the November ballot that would cut the rate to 4.4%. But the Conservatives have mostly avoided calls for the abolition of income tax, which exists since 1937because nobody presented a workable way to do it.

“Philosophically, I agree,” said state Sen. Bob Rankin, a Republican from Carbondale and the senior GOP member of the legislature’s Joint Budget Committee, which drafts the state budget. “How to get there would take work.”

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Ganahl’s Democratic opponent in November, Gov. Jared Polis, is also a supporter of eliminating Colorado’s income tax, but only if it’s eliminated without revenue impact. He said he wanted to raise taxes on other things – like pollution – to make up the difference.

And unlike Ganahl, Polis has not made eliminating Colorado’s income tax a cornerstone of his policy platform.

“We can find another way to generate income that doesn’t discourage productivity and growth,” he told a Conservative conference last year.

Colorado Governor Jared Polis delivers a “state of the state” address at the Grand Junction Convention Center Thursday, Feb. 17, 2022, in Grand Junction, Colo. (McKenzie Lange/The Grand Junction Daily Sentinel via AP)

Polis also appears to favor the November ballot measure to cut the income tax rate. “I’m generally supportive of those kinds of moves,” he told The Sun earlier this year.

In fiscal year 2020-21, the state’s personal income tax revenue was approximately $9.5 billion, representing more than 60% of total general fund revenue. The overall state budget that year, which also includes billions of federal dollars, was about $32 billion.

By comparison, sales tax revenue in fiscal year 2020-21, the second-largest source of general fund dollars, was about $3.4 billion. The state sales tax rate is 2.9%.

In the 2021-22 fiscal year, which ended June 30, personal income tax revenues are expected to total $11.5 billion. In this fiscal year, which began July 1, Colorado’s personal income tax revenue is expected to be about $11.6 billion.

Ganahl said his campaign plans to present the details of his proposal, a major part of his economic platform and his general speech to voters, later this summer. (“We have a policy team working on it,” Ganahl spokeswoman Lexi Swearingen said earlier this month.)

“I’m working with experts on this,” Ganahl said of his income tax plan. “I don’t want to get ahead of us. But I wouldn’t make that big, bold promise if I didn’t think we could make it happen.

Republican gubernatorial candidate Heidi Ganahl speaks during the GOP assembly at the Broadmoor World Arena on Saturday, April 9, 2022 in Colorado Springs. (Hugh Carey, The Colorado Sun)

Ganahl also said she plans to cut Colorado’s gasoline tax by 22 cents per gallon, which is one of the lowest gas taxes in the state in the country by half, which would significantly reduce the funds available to the Colorado Department of Transportation

There are already many skeptics.

First, Ganahl could not unilaterally eliminate Colorado’s income tax. She would probably need the help of the legislature and would almost certainly need the legislature to be controlled by Republicans. The GOP hasn’t held a majority in both the House and the Senate at the same time for more than a decade, and while the party is poised to make gains in the Senate this year and could even take control of the chamber, it is unlikely that they will obtain a majority in the Chamber.

The Colorado State Capitol on Dec. 10, 2021. (Olivia Sun, The Colorado Sun)

Second, Ganahl should find a way to eliminate income tax without breaking the state government.

Michael Fields, a conservative fiscal policy activist who has lobbied for phased reductions in income tax rates, said eliminating state income tax would not be possible without serious planning.

“You would definitely have to bridge a lot of that income with another source,” he said.

Democrats in the Legislature and liberal tax policy groups are almost uniformly against the idea.

“It’s red meat for the base,” said Scott Wasserman, who runs the liberal-leaning Bell Policy Center, “but like a lot of things I see coming out of his campaign, it’s not grounded in the governance.”

Proposing budget cuts is fair game, he said, but Ganahl needs to explain what cuts she would make or where she would find revenue to make up for what is lost.

“Obviously it would have an impact on people,” he said. “It must be an informed conversation.”

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The income tax rate paid by Colordans was based on their income. People with higher incomes paid more while people with lower incomes paid less until 1987, when a fixed rate of 5% was adopted. The rate was reduced by the legislature about 20 years ago, and then again by voters in 2020.

State Sen. Chris Hansen, a Democrat from Denver who is expected to be the next JBC chair, said Ganahl should explain to voters how she would fund schools if she cut income taxes.

“It would completely reduce the ability of the state to provide education and other services,” he said. “It’s just kind of absurd to say ‘we’re going to cut income tax’ without a plausible plan to replace that income.”

Ganahl provided some general ideas on how to get rid of Colorado’s income tax: find garbage in the budget (she didn’t say where there are billions of garbage now, though she complained the size of the budget) and bring new businesses to Colorado to create more jobs and increase the state’s existing revenue streams by improving the economy.

Heidi Ganahl announces her candidacy for governor on Tuesday, September 14, 2021 at Rosie’s Diner in Monument. (Olivia Sun, The Colorado Sun)

In Kansas, then governor. Sam Brownback, a Republican, cut income taxes in 2012 with the intention of boosting the state’s economy. It did not work and the cuts were eventually reversed.

Ganahl also pointed to the fact that nine other states have no income tax, including Florida and Texas.

However, the Florida sales tax rate is more than double the Colorado rate at 6%. Florida’s effective property tax rate is also much higher than Colorado’s, according to Rocket Mortgage, at 0.89% and 0.51% respectively.

In Texas, the state sales tax rate is 6.25%. Rocket Mortgage ranked Texas’ effective property tax rate as the 7th highest rate in the United States. Colorado’s rate was ranked third lowest.

Even if Ganahl wanted to raise the state sales tax rate in Colorado or the effective property tax rate, it would be extremely difficult.

Colorado’s Taxpayer Bill of Rights requires voter approval for all tax increases, and Colorado residents have been mostly reluctant to approve state tax increases since TABOR, an amendment constitutional, was adopted in 1992.

Hansen also points out that increasing the state sales tax rate would be regressive, as it would force poorer Coloradans to bear the same increases as their wealthier counterparts.

But Ganahl said she’s not intimidated by the big challenges that come with trying to eliminate state income tax.

“I want to roll up my sleeves and make the solutions work,” she said.

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